Music biz runs for cloud cover

Music for Screens: Summer 2011

Just eight years after the music industry experienced one of the most radical shifts in its history, it’s finding itself on the verge of yet another revolution.

The launch of iTunes in April 2003 certainly didn’t introduce digital downloads to consumers (Napster and countless other illegal download sites were thriving at the time), but it legitimized the distribution method and made it profitable for artists and labels. Now Apple — and a host of other companies — are hoping customers are willing to walk away entirely from physically owning the music in their collection in favor of the cloud.

Cloud-based music services are popping up left and right these days. The models vary from site to site, but the basic concept is the same. Users store their music remotely, and are then able to access it from virtually anywhere, as long as they have a compatible device (i.e. mobile phones, digital music players, tablets or computers) and (generally) an Internet connection.

In theory, it’s an incredible convenience. No longer will consumers have to physically transfer their digital music onto new devices. They simply buy it once and it’s available anywhere. But it’s not without hurdles. Some services require users to manually upload their collection to cloud storage — a process that can take hours (or, in the case of musicphiles with extensive collections, a day or more). And should users be caught in an Internet dead zone, they may not be able to access their songs.

On a more macro level, the question remains: Are people willing to once again change how they access their music — and, in many cases, pay for songs they already own — especially with so many other forms of entertainment competing for their dollar? Music industry officials are confident the answer is yes.

“I first started buying music on vinyl LPs,” says Randy Grimmett, executive VP, membership at ASCAP. “I thought in my lifetime, I would always be attached to a physical product. As a consumer myself, I’ve given up that notion. … I think consumers are very willing to move on to less physical control and think more about the access. Specifically: Where are they listening to it and where do they need it?”

The landgrab that goes with any sort of industry revolution is well under way. Apple is on the verge of launching iCloud, which will sync iTunes purchases (previous or future) onto any iDevice for free. In addition, for $25 a year, the company will scan customers’ computers and add any and all songs they’ve ripped themselves to the iCloud collection, using the iTunes version (in other words, there’s no need to upload those MP3 files).

“Keeping these devices in sync is driving us crazy,” says Apple CEO Steve Jobs when unveiling the service in June. “It’s the same old story. I buy something on my iPhone and it’s not on my other devices. I grab my iPod and I go to listen to that song and it ain’t there! … (With iCloud) anything I’ve bought I can now download to any of my devices at no additional charge.”

Amazon and Google are looking to own a piece of the market as well with Cloud Drive and Google Music. Amazon offers a minimal amount of free space, with users paying more as they upload more, while Google has implied that it will charge subscribers when its service emerges from its test period.

Apple, as you might guess, has the upper hand. The company has already sold 15 billion songs through iTunes — along with 200 million iOS devices, which will all be upgraded to iCloud with a software push this fall.

In addition, it made sure to secure label support before rolling the service out, something Google and Amazon haven’t done.

Google argues that it’s simply offering a storage platform. Amazon uses a similar argument and notes it already has rights to sell digital music files. (Labels maintain that’s different from a cloud storage and distribution system.)

“The labels don’t feel like they were properly acknowledged or licensed by Amazon,” Grimmett says.

On the other side of the fence are streaming services like Spotify and Pandora — which offer both free and subscription options, letting consumers bypass ownership all together in favor of having access to catalogs of million and millions of tracks — all delivered to them online.

Sweden-based Spotify, in particular, has shown tremendous momentum, gathering 1.4 million members in its first month of introduction in the U.S. — and converting 175,000 of those (a whopping 12.5%) to paying customers.

Streaming music might seem like a losing play for labels, but the companies say they carefully structure deals so it’s a victory for both sides.

“Spotify is now the second single-largest source of digital music revenue for labels in Europe, making sure that artists get a fair deal,” says Ken Parks, its chief content officer and managing director of North America.

“Spotify is generating serious revenues for rights holders, labels, publishers and the artists that they represent. We have paid tens of millions of euros to rights holders since our launch, who, in turn, pass this on to artists.”

The emergence of the cloud could bring a pair of new power players into the music business, though — one that would have been unthinkable 10 years ago: Telecoms and cable companies.

While Comcast, Cablevision, Time Warner, AT&T and Verizon don’t control all the nation’s bandwidth, they’re by far the country’s dominant Internet service providers. And since they’re the ones that determine rates and bandwidth caps, it gives them a lot of potential clout.

On top of that, because Internet service isn’t free, consumers may not realize they’re paying twice — or even three times, depending on how many outlets they use — to access their music: Once to purchase a track; again to stream it to their computer or other home media device; and again, perhaps, to their mobile phones.

For now, though, music lovers aren’t considering the costs. And ISP providers seem to be sitting on the sidelines with their focus not so much on music’s cloud, but video’s.

“At some point we may see a battle royal when data packages become skinnier and cloud applications gain ubiquity,” says Russ Crupnick, president of NPD Entertainment at the NPD Group.

“Today, consumers say overwhelmingly that they are unwilling to pay extra for ‘things’ that would get them access. So the collision comes when on one hand they’ve got to pay for a subscription to get the services on a device and on the other when there’s a premium for bandwidth. This concerns me more for video actually where the demands are significantly higher than for music.”